Accounting and Audit Enforcement


Accounting and Audit Enforcement

ACC 599 Graduate Accounting Capstone

May 23, 2015

Accounting and Audit Enforcement

WellCare is a FORTUNE 500 company located in Tampa, FL and is providing health care plans such Medicare and Medicaid for about four million people, are employing more than 6,100 associates and partnering with over 90 thousands physicians nationwide ( In 2009, the government filed charges against WellCare in regards to fraudulent activities discovered at this company. The Chief Executive Officer at that time, Todd S. Farha, along with others falsely submitted overstated expenditure information in the annual reports submitted to the Agency for Health Care Administration (AHCA) in order to decrease the WellCare HMOs’ contractual repayment obligations. There are many fraudulent activities such this one at WellCare and the authorities are trying to deter them by imposing new regulations and sanctions.

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SOX regulations for not-for-profit and for-profit health care institutions

The well so known scandals, such Enron, WorldCom and others, had damaged public assurance in capital markets. These scandals led to the passage of the Sarbanes-Oxley Act on July30, 2002 (Wegman, 2007). The SOX Act generated new penalties for acts of wrongdoing in addition to new standards for corporate accountability. The Act stipulates new responsibilities for financial reporting, containing adherence to new procedures and internal controls considered to guarantee the legitimacy of their financial records.

The benefits of not-for-profit and for-profit health care institutions compliance to SOX is significant. Many studies that have been made are showing that having strong internal controls could result in improved long-term shareholder value. Many institutions have found that complying is resulting in enhanced processes and systems, it is also eliminating redundancies, enhancing performance, improving the control environment, and increasing their understanding of the significance of strong corporate governance and risk intelligence (Bigalke, & Burrill, 2007).

When health care institutions are complying to Sarbanes-Oxley there is a greater safeguards against conflicts of interest, reporting on internal controls over financial reporting, explicit certifications of certain filings, and revised disclosure requirements (McConnell, & Banks, 2003). This way, the health care institutions will satisfy reporting requirements to directors, the public, shareholders, and other stakeholders with greater assurance. Institutions will also profit from the improved credibility that comes from quality reporting. This is a key advantage that can reduce the cost of capital and improve their ability to operate more effective. Improved control processes may increase the operating proficiencies and reduce fraud and litigation (McConnell, & Banks, 2003).

Involvement of SOX in ethical behavior in health care institutions

Besides protecting patients and maintaining a minimum standard of honest and quality, ethical standards are needed in order to prevent the careless and fraudulent use of health care funds. The concerns about quality of care and ethics are many times put on the second place as managed care's main focus is on raising profits and cutting costs (Miller, 1998). The big scandals of Enron, WorldCom, Adelphia, Tyco, HealthSouth, has considerably affected the health care industry and the scrutiny of ethics, morals, and integrity of healthcare leaders has become more critical.

The SOX Act of 2002 imposed restrictions and penalties, in order to limit the senior officers to claim unawareness of accounting wrongdoings, weaknesses, or internal control problems in their firms. And, not only the executives from big companies are affected by the increased ethical scrutiny, but the executive leaders in all types and sizes of healthcare establishments, including the not-for-profit healthcare establishments. Ethical clauses in employment contracts and dismissing senior officers, who may have not complied with such standards of conduct, are strictly enforced by boards at healthcare organizations. Some codes of conduct that serve healthcare financial professionals have been developed by professional organizations, such as American Institute of Certified Public Accountants, American College of Healthcare Executives, and Healthcare Financial Management Association, and these codes can serve as standards for testing one's response in such an environment (Stango, 2006). SOX has been effective in growing corporate focus on a strong ethical culture, however, there is, and always will be, room for improvement.

IT environment and reducing the risk of fraudulent activity

In today’s business environment, technology has an important role. The fast pace in technology changes is influencing the business world including health care organizations. Use of computers has drastically changed the ways of processing, recording and controlling. Increasing use of computers for processing organizational data has added new scope to the review and evaluation of internal controls for audit purposes. While the technology has an important role in the business environment, the need to control and audit IT has never been greater in order to ensure the integrity of its information systems. Businesses recognized that computers become key resources within the companies and that the need for control and audit is critical. The IT function needs to incorporate sound internal controls into the structural framework (Hunton, Bryant, & Bagranoff, 2004, p 93). The IT audit will collect and evaluate evidence to determine whether a computer system has been designed to safeguard assets, maintain data integrity, allows organizational goals to be achieved effectively and uses resources efficiently.

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In WellCare fraud case, it seems that there were no deficiencies in their IT environment; the deficiencies resided to their policies and procedures but also with their ethical decision making. When the WellCare executives took decisions, they did not put in balance the financial and market effect neither the compliance and ethics effects. Every company, including the ones from health care should have employed people that have integrity because this matter most.


Bigalke, J. T., & Burrill, S. J. (2007). Time for a second look at SOX compliance. HFM (Healthcare Financial Management), 61(8), 56-62.

Gibson, Mowen, Hansen Heitger, Johnstone, Gramling … Zimbelman. (2013). ACP Graduate Accounting Capstone (ACC599), (3th Ed.) Mason, OH. Cengage Learning.

Hunton, J. E., Bryant, S. M., & Bagranoff, N. A. (2004). Core concepts of information technology auditing. Hoboken, NJ: Wiley & Sons.

McConnell, J. K., & Banks, G. Y. (2003). How Sarbanes-Oxley will change the audit process. Journal of Accountancy, 196(3), 49-55.

Miller, I. (1998). Eleven unethical managed care practices every patient should know about. The National Coalition of Mental Health Professionals and Consumers. Retrieved from

Stango, M. R. (2006). Ethics, morals, and integrity focus at the top. HFM (Healthcare Financial Management), 60(6), 50-54.

Wegman, J. (2007). Impact of the Sarbanes-Oxley Act on accountant liability. Journal of Legal, Ethical & Regulatory Issues, 10(1), 1-18.